Costco Wholesale's new finance chief Gary Millerchip has made his first big move since taking the CFO role over from a predecessor who'd been in the job for nearly 40 years.
The bulk retailer, where membership is required for shoppers, announced on Wednesday that it was increasing its annual fees for the first time in seven years. Membership prices are increasing by $5 to $65 for the basic Gold Star level in the U.S. and Canada, while the executive membership plan, which offers cash back, will go to $130 from $120 as of Sept. 1.
Although the membership hike is the first major play of the Millerchip regime, the increase has been under discussion for much longer. The company's previous CFO, Richard Galanti, had been teasing it for months, hinting that that he preferred to wait until the pinch of inflation afflicting customers eased. Galanti said last September on a call with investors that it’s “a question of when, not if." Historically, membership fee increases happen every five years.
Membership fees are no small matter to a company like Costco: As detailed in a recent Fortune feature, such fees represent the bulk of Costco's profit given that the retailer's business model calls for it to roughly break even on its operations. That means the timing and size of a fee increase is one of the most important decisions made by a Costco CFO.
When Costco announced in February that Galanti was stepping down, the move came as a surprise to Wall Street. After all, Galanti was an icon on Wall Street for his direct talk and accessibility, and Costco has long favored insiders for its top roles. CEO Ron Vachris started as a forklifter in 1983, while Galanti joined in 1984. (Millerchip was CFO at grocery chain Kroger.)
Costco's long-standing goal is that 90% of its leadership roles be filled by insiders. And indeed, Galanti's successor was supposed to have come from within Costco. But the pandemic delayed any succession and forced the retailer to switch plans. "Some key people had made a different choice in their life and decided to move on," Vachris told Fortune in April, referring to the short list of future CFOs. And so the board decided to look outside to find Costco's next finance chief.
Key among wished-for attributes was someone who would quickly adjust to the Costco way of doing things, which has been, without a doubt, highly successful. Costco’s revenue has doubled since 2016 and its shares are near all-time highs. "Most importantly, there had to be a cultural fit," Vachris explained. "I told Gary, when he was hired, 'You're going to be in a tough situation because people are going to be scrutinizing you.' But the short term he's been here has been seamless."
Millerchip, who was noted for his work at helping Kroger build its e-commerce firepower, is already showing signs that he'll help push Costco forward in a way that is consistent with what has made it such a success. "I have experience in those areas (digital) and would hope that I can bring some of that to help us continue to evolve, but very much in the Costco way," he told the Wall Street Journal last month.
